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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-39497
UNITY SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware27-0334803
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
30 3rd Street
San Francisco, California 94103‑3104
(Address, including zip code, of principal executive offices)
(415) 539‑3162
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.000005 par valueUThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filerAccelerated filer
Nonaccelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes No x
As of May 5, 2021, there were 279,417,338 shares of the registrant’s common stock outstanding.



UNITY SOFTWARE INC.
FORM 10‑Q
For the Quarter Ended March 31, 2021
TABLE OF CONTENTS
Page
Item 1.
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.




NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10‑Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our financial performance, including revenue, cost of revenue, gross profit or gross margin, operating expenses, key metrics, and our ability to achieve or maintain future profitability;
our ability to effectively manage our growth;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our expectations regarding the demand for real-time 3D content in gaming and other industries and our ability to increase revenue from these industries;
economic and industry trends;
our ability to increase sales of our solutions;
our ability to attract and retain customers;
our ability to expand our offerings and cross-sell to our existing customers;
our expectations regarding the plans implemented or announced by Apple with respect to access of advertising identifiers and related matters, and the potential impact on our financial performance;
our ability to maintain and expand our relationships with strategic partners;
our ability to continue to grow across all major global markets;
the effects of increased competition in our markets and our ability to successfully compete with companies that are currently in, or may in the future enter, the markets in which we operate;
our estimated market opportunity;
our ability to timely and effectively scale and adapt our solutions;
our ability to continue to innovate and enhance our solutions;
our ability to develop new products, features and use cases and bring them to market in a timely manner, and whether our customers and prospective customers will adopt these new products, features and use cases;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to identify and complete acquisitions that complement and expand the functionality of our platform;
our ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to our business in the United States and globally;
our reliance on key personnel and our ability to attract, maintain, and retain management and skilled personnel;



the effects of the COVID-19 pandemic or other public health crises; and
the future trading prices of our common stock.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10‑Q.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10‑Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. Readers are cautioned that these forward‑looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under “Part II—Other Information, Item 1A. Risk Factors” and elsewhere herein. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10‑Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10‑Q. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10‑Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10‑Q to reflect events or circumstances after the date of this Quarterly Report on Form 10‑Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Additional Information
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” “Unity,” and “Unity Technologies” refer to Unity Software Inc. and its consolidated subsidiaries. The Unity design logos, “Unity” and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Unity Software Inc. or its affiliates. Other trade names, trademarks, and service marks used in this Quarterly Report are the property of their respective owners.
User Metrics
We define monthly active end users as the number of unique devices that have started an application made with Unity, or that have requested an advertisement from Unity Ads, during the trailing 30 days from month end. Devices tracked include smartphones, tablets, PCs, Macs and augmented and virtual reality devices, and exclude consoles and WebGL applications. This metric includes end users of both our non-paying and paying creators.



RISK FACTORS SUMMARY
Investing in our common stock involves numerous risks, including the risks described in “Part II—Other Information, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects.
We have a history of losses and may not achieve or sustain profitability in the future.
We have a limited history operating our business at its current scale, and as a result, our past results may not be indicative of future operating performance.
Our core value of putting our users first may cause us to forgo short-term gains and may not lead to the long-term benefits we expect.
Our business and operations have experienced recent rapid growth, which may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects.
Our business depends on our ability to retain our existing customers and expand their use of our platform.
If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.
We derive a significant portion of our revenue from our Operate Solutions. If we fail to attract and retain Operate Solutions customers, our business and results of operations would be adversely affected.
Operating system platform providers or application stores may change terms of service, policies or technical requirements to require us or our customers to change data collection and privacy practices, business models, operations, practices, advertising activities or application content, which could adversely impact our business.
If we are unable to further expand into new industries, or if our solutions for any new industry fail to achieve market acceptance, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.
Our business relies on strategic relationships with hardware, operating system, device, game console and other technology providers. If we are unable to maintain favorable terms and conditions and business relations with respect to our strategic relationships, our business could be harmed.
If we do not make our platform, including new versions or technology advancements, easier to use or properly train customers on how to use our platform, our ability to broaden the appeal of our platform and solutions and to increase our revenue could suffer.
Interruptions, performance problems, or defects associated with our platform may adversely affect our business, financial condition, and results of operations.
The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed.
If we or our third party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data, or our platform, our platform may be perceived as not secure, our reputation may be harmed, our business operations may be disrupted, demand for our products may be reduced, and we may incur significant liabilities.
If we fail to timely release updates and new features to our platform and adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, or changing customer needs, requirements, or preferences, our platform may become less competitive.



We may not be able to successfully manage our growth, and if we are not able to grow efficiently, our business, financial condition, and results of operations could be harmed.
We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or of a significant number of our team members, or the inability to attract and retain executives and employees we need to support our operations and growth, could harm our business.
Our business depends on the interoperability of our solutions across third-party platforms, operating systems, and applications, and on our ability to ensure our platform and solutions operate effectively on those platforms. If we are not able to integrate our solutions with third party platforms in a timely manner, our business may be harmed.
We are dependent on the success of our customers in the gaming market. Adverse events relating to our customers or their games could have a negative impact on our business.
We rely upon third-party data centers and providers of cloud-based infrastructure to host our platform. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could adversely affect our business, financial condition, and results of operations.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price, and the value of your investment could decline.
Seasonality may cause fluctuations in our sales and results of operations.
Downturns or upturns in our sales may not be immediately reflected in our financial position and results of operations.
Third parties with whom we do business may be unable to honor their obligations to us or their actions may put us at risk.
We use resellers and other third parties to sell, market, and deploy our solutions to a variety of customers, and our failure to effectively develop, manage, and maintain our indirect sales channels would harm our business.
Our direct sales force targets larger customers, and sales to these customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller customers.
If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, financial condition, and results of operations may suffer.
Our culture emphasizes innovation, and if we cannot maintain this culture as we grow, our business could be harmed.
We are subject to rapidly changing and increasingly stringent laws, contractual obligations, and industry standards relating to privacy, data security, and the protection of children. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business.
Adverse changes in the geopolitical relationship between the United States and China or changes in China's economic and regulatory landscape could have an adverse effect on business conditions.
Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions.
If we are unable to adequately address these and other risks we face, our business may be harmed.


Unity Software Inc.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
As of
March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$1,119,935 $1,272,578 
Marketable securities527,300 479,406 
Accounts receivable, net of allowances of $4,579 and $2,714 as of March 31, 2021 and December 31, 2020, respectively
298,200 274,255 
Prepaid expenses41,913 32,025 
Other current assets22,839 22,396 
Total current assets2,010,187 2,080,660 
Property and equipment, net97,597 95,544 
Operating lease right‑of‑use assets116,409 103,609 
Goodwill306,160 286,251 
Intangible assets, net57,940 57,459 
Restricted cash18,137 21,369 
Other assets44,012 26,333 
Total assets$2,650,442 $2,671,225 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$15,958 $11,303 
Accrued expenses and other current liabilities91,932 106,306 
Publisher payables186,316 182,269 
Income and other taxes payable54,231 64,116 
Deferred revenue116,718 113,853 
Operating lease liabilities25,437 25,375 
Total current liabilities490,592 503,222 
Long-term deferred revenue22,256 20,523 
Long-term operating lease liabilities109,996 98,532 
Other long-term liabilities10,386 11,805 
Total liabilities633,230 634,082 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.000005 par value; 100,000 shares authorized, and no shares issued and outstanding as of March 31, 2021; 100,000 shares authorized, no shares issued and outstanding as of December 31, 2020
  
Common stock, $0.000005 par value; 1,000,000 and 1,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 279,170 and 273,537 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
2 2 
Additional paid-in capital2,927,242 2,838,057 
Accumulated other comprehensive loss(3,552)(3,418)
Accumulated deficit(906,480)(797,498)
Total stockholders’ equity2,017,212 2,037,143 
Total liabilities and stockholders’ equity$2,650,442 $2,671,225 
See accompanying Notes to Condensed Consolidated Financial Statements.


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
20212020
Revenue$234,772 $166,994 
Cost of revenue58,734 31,868 
Gross profit176,038 135,126 
Operating expenses
Research and development154,015 81,751 
Sales and marketing69,793 43,259 
General and administrative63,132 37,553 
Total operating expenses286,940 162,563 
Loss from operations(110,902)(27,437)
Interest expense(115)(132)
Interest income and other expense, net1,565 1,856 
Loss before provision for income taxes(109,452)(25,713)
Provision for (benefit from) income taxes(1,992)1,023 
Net loss(107,460)(26,736)
Basic and diluted net loss per share:
Net loss per share attributable to our common stockholders, basic and diluted$(0.39)$(0.21)
Weighted-average shares used in per share calculation attributable to our common stockholders, basic and diluted276,068 127,783 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Net loss$(107,460)$(26,736)
Other comprehensive loss, net of taxes:
Change in foreign currency translation adjustment(31)(95)
Change in unrealized losses on marketable securities(103) 
Other comprehensive loss(134)(95)
Comprehensive loss$(107,594)$(26,831)
See accompanying Notes to Condensed Consolidated Financial Statements.
3


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Three Months Ended March 31, 2021
Accumulated
AdditionalOtherTotal
Convertible Preferred StockCommon StockPaid-InComprehensiveAccumulatedStockholders’
SharesAmountSharesAmountCapitalLossDeficitEquity
Balance at December 31, 2020 $ 273,537,218 $2 $2,838,057 $(3,418)$(797,498)$2,037,143 
Cumulative effect of accounting change— — — — — — (1,522)(1,522)
Issuance of common stock from exercise of stock options— — 4,544,498 — 22,624 — — 22,624 
Issuance of common stock for settlement of RSUs— — 1,088,445 — — — —  
Stock‑based compensation expense— — — — 64,424 — — 64,424 
Stock-based compensation expense in connection with modified awards for certain employees— — — — 2,137 — — 2,137 
Net loss— — — — — — (107,460)(107,460)
Foreign currency translation adjustment— — — — — (31)— (31)
Unrealized loss on investments— — — — — (103)— (103)
Balance at March 31, 2021 $ 279,170,161 $2 $2,927,242 $(3,552)$(906,480)$2,017,212 
Three Months Ended March 31, 2020
Accumulated
AdditionalOtherTotal
Convertible Preferred StockCommon StockPaid-InComprehensiveAccumulatedStockholders’
SharesAmountSharesAmountCapitalLossDeficitEquity
Balance at December 31, 201995,899,214 $686,559 123,261,024 $1 $226,173 $(3,632)$(515,190)$393,911 
Issuance of common stock— — 4,545,455 — 100,000 — — 100,000 
Issuance of common stock from exercise of stock options— — 767,527 — 2,429 — — 2,429 
Purchase and retirement of treasury stock— — (5,000)— (110)— — (110)
Issuance of convertible Series E preferred stock, net of issuance costs6,818,182 149,970 — — — — — 149,970 
Stock‑based compensation expense— — — — 9,691 — — 9,691 
Net loss— — — — — — (26,736)(26,736)
Foreign currency translation adjustment— — — — — (95)— (95)
Balance at March 31, 2020102,717,396 $836,529 128,569,006 $1 $338,183 $(3,727)$(541,926)$629,060 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Operating activities
Net loss$(107,460)$(26,736)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization11,832 9,810 
Stock-based compensation expense64,424 9,691 
Stock-based compensation expense in connection with modified awards for certain employees2,137  
Other1,441 41 
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net(25,061)(13,470)
Prepaid expenses (9,888)(6,084)
Other current assets(2,318)(9,216)
Operating lease right-of-use ("ROU") assets5,907 5,855 
Deferred tax, net(1,824)280 
Other assets(11,569)229 
Accounts payable6,303 (437)
Accrued expenses and other current liabilities(13,767)(3,174)
Publisher payables4,047 10,154 
Income and other taxes payable(10,104)(3,366)
Operating lease liabilities(7,492)(7,756)
Other long-term liabilities309 1,255 
Deferred revenue4,201 923 
Net cash used in operating activities(88,882)(32,001)
Investing activities
Purchase of marketable securities(129,082) 
Proceeds from principal repayments on marketable securities2,017  
Maturities of marketable securities78,000  
Purchase of non-marketable investments(4,000) 
Purchase of property and equipment(11,744)(7,566)
Acquisition of intangible assets (325)
Business acquisitions, net of cash acquired(24,817) 
Net cash used in investing activities(89,626)(7,891)
5


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Financing activities
Proceeds from revolving loan facility 125,000 
Payment of debt issuance costs (247)
Proceeds from issuance of convertible preferred stock, net of issuance costs 149,970 
Proceeds from issuance of common stock 100,000 
Purchase and retirement of treasury stock (110)
Proceeds from exercise of stock options22,624 2,429 
Net cash provided by financing activities22,624 377,042 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash9 (72)
Increase (decrease) in cash, cash equivalents, and restricted cash(155,875)337,078 
Cash and restricted cash, beginning of period1,293,947 147,096 
Cash, cash equivalents, and restricted cash, end of period$1,138,072 $484,174 
Supplemental disclosure of cash flow information:
Cash paid for interest$84 $ 
Cash paid for income taxes, net of refunds$(1,197)$7,648 
Supplemental disclosures of non‑cash investing and financing activities:
Accrued property and equipment$2,358 $3,874 
Accrued intangible assets acquisition$ $325 
The below table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets to the total of the same amounts shown on the condensed consolidated statements of cash flows (in thousands):
As of March 31,
20212020
Cash and cash equivalents$1,119,935 $466,989 
Restricted cash18,137 17,185 
Total cash, cash equivalents, and restricted cash$1,138,072 $484,174 
See accompanying Notes to Condensed Consolidated Financial Statements.

6


Unity Software Inc.
UNITY SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
We were founded as Over the Edge Entertainment in Denmark in 2004. We reorganized as a Delaware corporation on May 28, 2009 as Unity Software Inc. (collectively referred to with its wholly owned subsidiaries as “we,” “our” or “us,”). We provide a comprehensive set of software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices, among others.
We are headquartered in San Francisco, California and have operations in the United States, Denmark, Belgium, Canada, China, Colombia, Finland, France, Germany, Ireland, Israel, Japan, Lithuania, Singapore, South Korea, Spain, Sweden, and the United Kingdom.
We market our solutions directly through our online store and field sales operations in North America, Denmark, Finland, the United Kingdom, Germany, Japan, China, Singapore, and South Korea and indirectly through independent distributors and resellers worldwide.
Basis of Presentation and Consolidation
We prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. The condensed consolidated financial statements include the accounts of Unity Software Inc. and its wholly owned subsidiaries. We have eliminated all intercompany balances and transactions. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, the information contained herein reflects all adjustments necessary for a fair presentation of our results of operations, financial position, cash flows, and stockholders’ equity. All such adjustments are of a normal, recurring nature. The results of operations for the three months ended March 31, 2021 shown in this report are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 or any other period. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 5, 2020.
There have been no material changes in our significant accounting policies as described in our consolidated financial statements for the year ended December 31, 2020, other than the adoption of accounting pronouncements as described below in Note 2, “Summary of Accounting Pronouncements,” of the Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. For us, these estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, fair values of financial instruments, useful lives of fixed assets, the incremental borrowing rate ("IBR") we use to determine our operating lease liabilities, income taxes, valuation of deferred tax assets and liabilities, valuation of intangible assets, useful lives of intangible assets, assets acquired and liabilities assumed through business combinations, fair value of our common stock prior to our IPO, valuation of stock-based compensation, capitalization of software costs and software implementation costs, customer life for capitalized commissions, and other contingencies, among others. Actual results could differ from those estimates, and such differences could be material to our financial position and results of operations.
2. Summary of Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. This update replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The new impairment methodology eliminates the probable initial recognition threshold and, instead, estimates the expected credit losses in consideration of past events, current conditions and forecasted information. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.
We adopted this new standard effective January 1, 2021, using the modified-retrospective approach, which resulted in a cumulative-effect adjustment of $1.5 million to accumulated deficit. We updated the following accounting policies as a result of the adoption of this guidance.
Accounts Receivable
We record accounts receivable at the original invoiced amount, net of allowances for credit losses for any potential uncollectible amounts. We make estimates of expected credit losses for the allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. The estimated credit loss allowance is recorded as a general and administrative expense on our condensed consolidated statement of operations. As of March 31, 2021, the allowance for credit losses was $4.6 million.
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Unity Software Inc.
Marketable Securities
Our marketable securities consist of investments in U.S. treasury securities, asset-backed securities, corporate bonds, commercial paper, and supranational bonds. We classify our investments in debt securities as available-for-sale at the time of purchase. We consider all debt securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities as current assets in the consolidated balance sheets. When the fair value of a security is below its amortized cost, the amortized cost will be reduced to its fair value if it is more likely than not that we are required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security. If neither of these conditions is met, we determine whether the impairment is due to credit losses by comparing the present value of the expected cash flows of the security with its amortized cost basis. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security. An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in interest income and other expense, net in our condensed consolidated statements of operations. Impairment losses that are not credit-related are included in accumulated other comprehensive loss in stockholders’ equity.
3. Revenue
Disaggregation of Revenue
Revenue by Source
The following table presents our revenue disaggregated by source (in thousands):
Three Months Ended March 31,
20212020
Create Solutions$70,387 $46,696 
Operate Solutions146,578 104,368 
Strategic Partnerships and Other17,807 15,930 
Total revenue$234,772 $166,994 
Additional information regarding our revenue by source is discussed under the heading “Revenue Recognition” in Note 1, “Description of Business and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
Revenue by Geographic Area
The following table presents our revenue disaggregated by geography, based on the invoice address of our customers (in thousands):
Three Months Ended March 31,
20212020
United States$57,006 $40,490 
Greater China (1)(2)
36,549 23,756 
EMEA (1)(3)
86,102 64,691 
APAC (1)(4)
45,679 30,411 
Other Americas (1)(5)
9,436 7,646 
Total revenue$234,772 $166,994 
(1)    No individual country, other than those disclosed above, exceeded 10% of our total revenue for any period presented.
(2)    Greater China includes China, Hong Kong, and Taiwan.
(3)    Europe, the Middle East, and Africa (“EMEA”)
(4)    Asia-Pacific, excluding Greater China (“APAC”)
(5)    Canada and Latin America (“Other Americas”)
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets relate to performance completed in advance of scheduled billings. The primary changes in our contract assets and contract liabilities are due to our performance under the contracts and billings.
Contract assets (unbilled receivables) included in accounts receivable are recorded when revenue is recognized in advance of customer invoicing. Unbilled receivables totaled $29.7 million and $26.3 million as of March 31, 2021 and December 31, 2020, respectively. Contract liabilities (deferred revenue) relate to payments received in advance of performance under the contract. Revenue recognized during the three months ended March 31, 2021 that was included in the deferred revenue balances at December 31, 2020 was $43.8 million. The satisfaction of performance obligations typically lags behind payments received under contract from customers, which may lead to an increase in our deferred revenue balance over time.
Remaining Performance Obligations
As of March 31, 2021, we had total remaining performance obligations of $218.5 million, which represents the total contract transaction price allocated to undelivered performance obligations primarily for Create Solutions subscriptions, Enterprise Support, and Strategic Partnership contracts, which are generally recognized over the next three years. Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. This amount excludes contracts with an original expected term of one year or less and contracts for which we recognize revenue in the amount and in the same period in which we invoice for services performed. We expect to recognize $98.2 million or 45% of this revenue during the next 12 months. We expect to recognize the remaining $120.3 million or 55% of this revenue thereafter.
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Unity Software Inc.
4. Cash Equivalents and Marketable Securities
Cash equivalents and marketable securities consisted of the following as of March 31, 2021 (in thousands):
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$284,042 $— $— $284,042 
Commercial paper33,992 — — 33,992 
Total cash equivalents$318,034 $— $— $318,034 
Marketable securities:
Asset-backed securities$58,383 $9 $(26)$58,366 
Corporate bonds93,036 3 (82)92,957 
U.S. treasury securities328,239 74 (7)328,306 
Supranational bonds47,692 5 (26)47,671 
Total marketable securities$527,350 $91 $(141)$527,300 
Cash equivalents and marketable securities consisted of the following as of December 31, 2020 (in thousands):
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$660,086 $— $— $660,086 
Commercial paper75,726 — — 75,726 
Total cash equivalents$735,812 $— $— $735,812 
Marketable securities:
Asset-backed securities$49,950 $54 $(39)$49,965 
Corporate bonds92,312 31 (21)92,322 
U.S. treasury securities327,025 81 (56)327,050 
Supranational bonds10,066 4 (1)10,069 
Total marketable securities$479,353 $170 $(117)$479,406 
We did not recognize any credit losses related to our available-for-sale debt securities during the three months ended March 31, 2021.
The following table summarizes the amortized cost and fair value of our marketable securities as of March 31, 2021, by contractual years to maturity (in thousands):
Amortized CostFair Value
Due within one year$325,424 $325,446 
Due between one and two years201,926 201,854 
Total$527,350 $527,300 
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Unity Software Inc.
5. Fair Value Measurements
We categorize assets and liabilities recorded or disclosed at fair value on our consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
The following table presents the fair value of our financial assets and liabilities measured at fair value on a recurring basis using the above input categories as of March 31, 2021 (in thousands):
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$284,042 $ $ $284,042 
Commercial paper 33,992  33,992 
Total cash equivalents$284,042 $33,992 $ $318,034 
Marketable securities:
Asset-backed securities$ $58,366 $ $58,366 
Corporate bonds 92,957  92,957 
U.S. treasury securities 328,306  328,306 
Supranational bonds 47,671  47,671 
Total marketable securities$ $527,300 $ $527,300 
The following table presents the fair value of our financial assets and liabilities measured at fair value on a recurring basis using the above input categories as of December 31, 2020 (in thousands):
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$660,086 $ $ $660,086 
Commercial paper 75,726  75,726 
Total cash equivalents$660,086 $75,726 $ $735,812 
Marketable securities:
Asset-backed securities$ $49,965 $ $49,965 
Corporate bonds 92,322  92,322 
U.S. treasury securities 327,050  327,050 
Supranational bonds 10,069  10,069 
Total marketable securities$ $479,406 $ $479,406 
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Unity Software Inc.
6. Acquisitions
Acquisitions are accounted for in accordance with FASB ASC Topic 805, Business Combinations, and the revenue and earnings of the acquired businesses have been included in our results from the respective dates of the acquisitions and were not material to our condensed consolidated financial statements.
The total purchase price allocated to the net assets acquired is assigned based on the fair values as of the date of acquisition. The fair value assigned to identifiable intangible assets acquired was determined using the income approach and the cost approach. We believe that these identified intangible assets will have no residual value after their estimated economic useful lives. The identifiable intangible assets are subject to amortization on a straight-line basis, as this best approximates the benefit period related to these assets.
The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill. Goodwill is not subject to amortization and it typically is not deductible for U.S. income tax purposes.
For 2021 and certain 2020 acquisitions, the fair values of assets acquired and liabilities assumed, including current income taxes payable and deferred taxes, may change over the measurement period as additional information is received and certain tax returns are finalized. Accordingly, the provisional measurements of fair value of the current income taxes payable and deferred taxes are subject to change. We expect to finalize the valuation as soon as practicable, but not later than one year from the respective acquisition dates.
2021 Acquisitions
During the three months ended March 31, 2021, we completed the acquisition of Visual Live 3D LLC for total consideration of approximately $24.8 million payable in cash. In aggregate, $4.9 million was attributed to intangible assets and represents acquired developed technology, customer relationships, and trademarks, $0.6 million was attributed to other assets, $19.9 million was attributed to goodwill and $0.6 million was attributed to other liabilities assumed. This acquisition was strategic in nature as it enhanced our product offerings.
We recorded $0.6 million in transaction costs associated with this acquisition for the three months ended March 31, 2021. These costs were recorded within general and administrative expenses.
Pro forma results of operations for this acquisition have not been presented because the acquisition is not material to the condensed consolidated statements of operations and comprehensive loss.
In March 2021, we signed an agreement to purchase a company that designs and develops data transformation technology tools. The acquisition is expected to close in the second quarter of the year ending December 31, 2021 and will not be significant.
7. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in business combinations.
The following table presents the changes in the carrying amount of goodwill for the three months ended March 31, 2021 (in thousands):
Balance as of December 31, 2020$286,251 
Goodwill from acquisition19,909 
Balance as of March 31, 2021$306,160 
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Unity Software Inc.
Intangible Assets, Net
The following tables present details of our intangible assets, excluding goodwill (in thousands, except for weighted-average useful life):
As of March 31, 2021
Weighted-Average
Useful Life
(1)
(In Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Developed technology5.8$86,374 $(35,515)$50,859 
Customer relationships2.115,431 (9,765)5,666 
Trademark3.33,657 (2,242)1,415 
Total intangible assets$105,462 $(47,522)$57,940 
As of December 31, 2020
Weighted‑Average
Useful Life
(1)
(In Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Developed technology5.8$83,688 $(32,342)$51,346 
Customer relationships2.213,327 (8,682)4,645 
Trademark3.33,507 (2,039)1,468 
Total intangible assets$100,522 $(43,063)$57,459 
(1)    Based on weighted-average useful life established as of the acquisition date.
The following table presents the amortization of finite-lived intangible assets included on our condensed consolidated statements of operations and comprehensive loss (in thousands):
Three Months Ended March 31,
20212020
Amortization expense$4,459 $4,144 
As of March 31, 2021, the estimated future amortization of finite-lived intangible assets for each of the next five years and thereafter was as follows (in thousands):
Remainder of 2021$13,412 
202215,296 
202311,922 
202411,281 
20255,507 
Thereafter522 
Total$57,940 
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8. Balance Sheet Components
The following tables provide details of selected balance sheet items (in thousands):
As of
March 31,
2021
December 31,
2020
Property and equipment, net:
Gross property and equipment
Leasehold improvements$69,064 $65,669 
Computer and other hardware62,710 58,568 
Furniture24,448 23,685 
Internally developed software2,043 3,301 
Purchased software1,443 1,436 
Construction in progress13,935 13,343 
Total gross property and equipment173,643 166,002 
Accumulated depreciation and amortization (1)
(76,046)(70,458)
Property and equipment, net$97,597 $95,544 
(1)    The following table presents the depreciation and amortization of property and equipment included on our condensed consolidated statements of operations and comprehensive loss (in thousands):
Three Months Ended March 31,
20212020
Depreciation and amortization expense$7,373 $5,666 
Long-lived Assets, Net, by Geographic Area
The following table presents our long-lived assets, net, disaggregated by geography, which consists of our property and equipment, net, but excludes internally developed software and purchased software (in thousands):
As of
March 31,
2021
December 31,
2020
United States$34,520 $35,494 
Canada24,202 20,063 
United Kingdom17,373 17,846 
Greater China5,214 5,653 
EMEA, excluding United Kingdom (1)
11,112 11,181 
APAC (1)
3,258 3,546 
Other Americas, excluding Canada (1)
791 809 
Total long-lived assets, net$96,470 $94,592 
(1)    No individual country, other than those disclosed above, exceeded 10% of our total long-lived assets, net, for any period presented.
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As of
March 31,
2021
December 31,
2020
Accrued expenses and other current liabilities:
Accrued expenses$47,821 $53,535 
Accrued compensation44,111 52,771 
Accrued expenses and other current liabilities$91,932 $106,306 
Sales Commissions
We consider internal sales commissions as potential incremental costs of obtaining the contract with a customer. We apply a practical expedient to expense incremental costs incurred if the period of the benefit is one year or less. Incremental costs that have a period of benefit greater than one year are capitalized and amortized over the estimated period of benefit. Capitalized commissions, net of amortization, are included in other current assets and other assets on our condensed consolidated balance sheets. We capitalized $2.6 million and $1.4 million of sales commissions for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, capitalized commissions, net of amortization, included in other current assets and other assets were $3.8 million and $5.1 million, respectively. Capitalized commissions, net of amortization, included in other current assets and other assets were $2.9 million and $4.4 million, respectively, as of December 31, 2020.
Capitalized commissions are amortized over the expected period of benefit, which we have determined, based on analysis, to be three years. Amortization of capitalized commissions are included in sales and marketing expenses on our condensed consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2021 and 2020, we amortized $1.0 million and $0.1 million of capitalized commissions, respectively. We did not incur any impairment losses for the three months ended March 31, 2021 and 2020.
9. Leases
We have operating leases for offices and equipment, which have remaining lease terms of less than one year to 10.75 years, some of which include options to extend the lease with renewal terms from one to five years. Some leases include an option to terminate the lease from less than one year up to five years from the lease commencement date.
Components of lease expense were as follows (in thousands):
Three Months Ended March 31,
20212020
Operating lease expense, excluding ROU asset impairment$7,301 $7,113 
Short-term lease expense117 307 
Variable lease expense975 1,700 
Sublease income(93)(18)
Total lease expense$8,300 $9,102 
Other information related to operating leases was as follows (in thousands):
Three Months Ended March 31,
20212020
Cash paid for amounts included in the measurement of operating lease liabilities$7,840 $6,395 
Operating lease ROU assets obtained in exchange for new operating lease liabilities$18,891 $14,229 
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